First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

June 11

Advertising on a shoestring

Are you saddled with a tight advertising budget? The June issue of Harvard Business Review has just the article for you. In "How to Profit from 'Lean Advertising,'" Thales Teixeira introduces a framework that identifies four innovative ways to create and distribute ads without spending a lot of money: creating content yourself; distributing content yourself (e.g. inbound marketing); outsourcing content creating (e.g. crowdsourcing); and outsourcing content distribution (e.g. getting a video ad to go viral).

Facing a green dilemma

It's not easy being green, especially for firms that are trying to balance the pursuit of greenbacks with the pursuit of a greener planet. Christopher Marquis and Juan Almondoz address the dilemma in a case about a startup bank that opens in the midst of the financial crisis, with the noble goal of promoting sustainability through banking. In "First Green Bank: Bringing Bloom to Desert Landscapes," bankers consider whether to issue a loan to an arms manufacturer.

Evaluating a service sector's growth

In "The Growth of Finance," Robin Greenwood and David Scharfstein discuss the recent evolution of the financial services sector, which accounted for more than a quarter of the growth of the services sector as a whole since 1980. "With a better understanding of how the financial sector changed, we provide some perspectives on the social benefits and costs of financial sector growth," they write. Read the article in the spring issue of the Journal of Economic Perspectives.

— Carmen Nobel

Publications

2006

Journal of International Business Studies

Firm Rivalry, Knowledge Accumulation, and MNE Location Choices

By: Alcácer, Juan, Cristian Deszo, and Minyuan Zhao

Abstract—The international business (IB) literature has mostly emphasized the impact of location and firm characteristics on location choices. However, industries with a significant presence of multinational enterprises (MNEs) are oligopolistic in nature, which suggests that rivalry among firms plays an important role in firms' dynamic decision-making processes. This paper explores how rivalry and differential knowledge accumulation among competitors affect MNEs' geographic expansion across time and markets. Specifically, we build a model in which two competing firms with different capabilities simultaneously decide a sequence of market entries. Following previous research, we allow the possibility that certain markets are closer (a better fit) to one firm than to the other, and that certain knowledge is more transferable across markets (less market specific). We then solve the model computationally and identify three equilibrium strategies-avoid, collocate, and stronger-chases-weaker-depending on the initial relative firm capabilities, market attractiveness, market-firm fit, and knowledge transferability. By explicitly incorporating firm rivalry across multiple markets, our model offers a comprehensive approach to understanding the drivers behind MNEs' sequential location choices and offers alternative explanations for some important empirical observations in IB, such as bunching and second-mover advantage in market entries.

Abstract—The well-established negative correlation between staggered boards (SBs) and firm value could be due to SBs leading to lower value or a reflection of low-value firms' greater propensity to maintain SBs. We analyze the causal question using a natural experiment involving two Delaware court rulings―separated by several weeks and going in opposite directions―that affected the antitakeover force of SBs. We contribute to the long-standing debate on staggered boards by documenting empirical evidence consistent with the market viewing SBs as leading to lower firm value for the affected firms.

The Growth of Finance

By: Greenwood, Robin, and David S. Scharfstein

Abstract—The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly for residential mortgages. This expansion was itself fueled by the development of non-bank credit intermediation (or "shadow banking"). Whether the growth of the financial sector has been socially beneficial depends on one's view of active asset management, the increase in household credit, and the growth of shadow banking. While recognizing some of the benefits of professional asset management, we are skeptical about the marginal value of active asset management. We then raise concerns about whether the potential benefits of increased access to household credit-the main output of the shadow banking system-are outweighed by the risks inherent in this new approach to credit delivery.

Abstract—The article presents a fictional case study on new product development and improvement after the successful launch of a first breakthrough product. Topics include business planning for brand name products, finance and investment for the development of educational toys, strategies for product differentiation, and technological improvements to the original product.

Abstract—This article introduces the concept of Lean Advertising, i.e., how to use non-traditional approaches to create and distribute advertising using extremely low-cost approaches online. A framework for Lean Advertising is proposed that identifies the four ways in which companies can execute marketing with low budgets by (1) creating content themselves, (2) distributing content themselves (e.g., inbound marketing), (3) outsourcing content creation (e.g., via crowdsourcing), or (4) outsourcing content distribution (e.g., viral marketing). Benefits and challenges of these four approaches are discussed and their costs are compared to that of traditional mass media using ad agency content creation.

First Green Bank is a bank start-up in the midst of the financial crisis that aims to promote sustainability while making money as a bank. The case presents an ethical dilemma as it considers a loan to an arms manufacturer.